How Nordic manufacturers are navigating the gap between current output and wartime surge capacity—and what it means for investors and supply chain partners
When Saab recently announced plans to scale Gripen E/F fighter production to 36 aircraft annually—a threefold increase from current output—the move signalled more than corporate ambition. It reflected a stark operational reality confronting Sweden’s defence sector: the Swedish Armed Forces have formally determined that national defence industry output must triple under peacetime conditions to meet NATO-integrated force requirements. Yet this target represents merely the baseline. In wartime scenarios, military planners estimate production would need to surge tenfold—a scale of industrial mobilization unseen since the Cold War.
This dual-track challenge—scaling sustainably for peacetime readiness while retaining surge capacity for conflict—defines the strategic inflection point for Nordic defence manufacturers. Sweden’s 2026 defence budget, which surged 18% to SEK 175 billion (2.8% of GDP), provides unprecedented funding momentum. But capital appropriation alone cannot resolve the structural constraints facing industrial scaling. The Swedish Security and Defence Industry Association (SOFF) confirms tripling production is technically feasible—but only with decade-long framework contracts that de-risk private investment in specialised machinery and skilled workforce development.
The Investment Certainty Imperative
Defence manufacturing differs fundamentally from commercial production cycles. A single artillery shell production line requires SEK 200–300 million in specialized tooling with 7–10-year depreciation cycles. Without multi-year volume guarantees, companies cannot justify capital expenditures that would otherwise sit idle during procurement gaps—a pattern that plagued European defence industries after the Cold War drawdown. Nammo’s recent SEK 1.8 billion framework agreement to triple 155mm ammunition output at its Karlskoga facility exemplifies the contract structure now emerging: predictable volumes enabling machinery investment while maintaining production flexibility.
This shift carries profound implications for Nordic supply chains. Component manufacturers—from precision ballistics producers like SWEBAL to electronics integrators—face a critical decision: commit to defence-specialized capacity (with associated export control complexities) or remain dual-use suppliers with lower margins but greater market flexibility. Early movers securing positions in Saab’s expanded Gripen supply chain or BAE Systems Hägglunds’ CV90 upgrade programs are positioning for sustained growth as Sweden executes its Defence Industry Strategy, formally launched in June 2025 to create “an innovative and competitive defence sector with high production capacity.”
Nordic Integration: Competitive Advantage or Fragmentation Risk?
Sweden’s scaling challenge cannot be viewed in isolation. Finland’s 2025 NORDEFCO chairmanship has accelerated implementation of Vision 2030—a framework for deeper Nordic industrial cooperation including shared testing facilities and coordinated procurement. et meaningful integration remains nascent. While Norway invests heavily in naval systems and Denmark in air defence, fragmented national requirements still prevent the economies of scale that could reduce unit costs by 15–25% according to defence economists.
The opportunity lies in leveraging Sweden’s position as the world’s 13th largest weapons exporter to anchor a Nordic industrial cluster. Saab’s exploration of Gripen production partnerships in Canada—and potential future arrangements with Finnish or Norwegian firms—signals recognition that export-driven scale is essential to fund domestic readiness. For Nordic business leaders, the strategic question is whether regional competitors will deepen collaboration to compete globally against U.S. and European defence primes, or remain fragmented players vulnerable to acquisition.
The Human Capital Bottleneck
Perhaps the most underappreciated constraint is workforce capacity. Sweden’s defence sector employs approximately 20,000 highly specialized engineers and technicians—a pool insufficient to support tripling output without aggressive recruitment from automotive and aerospace sectors already facing talent shortages. The government’s 2026 allocation of SEK 3 million to establish a Defence Industry Cooperation Office acknowledges this challenge, but industry leaders warn that vocational training pipelines require 3–5 years to yield production-ready talent.
For investors and executives, the path forward demands nuanced assessment: near-term opportunities exist in ammunition components, cybersecurity integration, and maintenance logistics—segments with shorter scaling timelines. Long-term value will accrue to firms securing positions in framework contracts with 10+ year horizons, particularly those enabling export growth beyond Nordic markets now accessible through Sweden’s NATO membership.
Next up:
Our next analysis will examine the Nordic ammunition supply chain bottleneck—how raw material dependencies on non-EU sources create strategic vulnerabilities even as production capacity expands. We invite defence industry executives, supply chain leaders, and policy experts to share insights with our defence desk at insights@nordicbusinessjournal.com. Follow our Nordic Defence Industrial Index for quarterly tracking of sector investment flows and production metrics.